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Oil crash: Nigeria may lose N2tn this year

By on April 25, 2015

The fall in global crude oil prices may result in a revenue decline of about $10bn (about N2.2tn) to the Nigerian economy this year, international and local oil producers have said.

This is just as the Nigerian National Petroleum Corporation has strongly advocated for the complete stoppage of the payment of fuel subsidies by the Federal Government.

The Oil Producers Trade Section, a 22-member group comprising local and international firms, who form 96 per cent of total oil and gas production in the country, stated that the fall in crude oil prices had exposed Nigeria to severe revenue squeeze.

The Chairman, OPTS, Mrs. Elizabeth Proust, said estimates by the group showed that at an average price of $53 per barrel for crude oil, Nigeria’s revenue might decline by $10bn this year.

After falling from over $100 per barrel early last year to as low as $40 per barrel in December, crude oil prices have remained range-bound at between $45 and $60 per barrel since the beginning of this year.

Proust, who is the Managing Director, Total Exploration and Production, Nigeria, spoke at the 2015 Oloibiri Lecture Series and Energy Forum organised by the Society of Petroleum Engineers in Abuja.

She said, “There is no doubt that the crude oil prices that we are experiencing today are having a severe adverse impact on the revenues of both producers and host governments globally.

“Unfortunately, Nigeria is not immune to this revenue squeeze. We estimate that if crude oil price averages $53 per barrel in 2015, compared to $77.5 in 2014, the Federal Government of Nigeria’s oil and gas revenue will decline by about $10bn this year, or a gut reaching 30 per cent.

“Total allocation to state governments was N620bn in the last quarter of 2014, as the oil price was sliding, 15 per cent lower than the same quarter of 2013. This is resulting in the slowing or cancelling of many infrastructure projects that Nigeria desperately needs.”

Proust stated that in response to the challenging price environment, businesses were adding more rigour to cost optimisation programmes in order to boost their various bottom-lines.

She said operators as well as governments should not expect a near-term cost relief, adding that “in Nigeria, long contract approval times and other bureaucracies further slow any gains from cost adjustments to low crude oil prices.”

Proust stated that “low crude oil prices have significantly reduced the level of investible funds, at a time when competition for investments is sharpening.”

On subsidy matters, the Group Coordinator, Corporate Strategy and Planning, NNPC, Mr. Timothy Okon, explained that since the Federal Government was not in control of crude prices, their fluctuation often created fiscal instability in the country, a situation that was impacting negatively on Nigeria’s revenue.

Although the NNPC admitted that it was aware of the massive nationwide protests and industrial actions that took place in January 2012 when the Federal Government announced the complete withdrawal of subsidy on petrol, it maintained that the continued payment of subsidy was not sustainable.

Subsidy is the difference between the Expected Open Market Price of fuel and the actual or retail price that is paid by consumers for the product at filling stations as regulated by the Department of Petroleum Resources.

Okon argued that when crude oil prices came down to about $40 per barrel, subsidy was not paid during that period as the landing cost of the product was either equal of even lower than its market value.

According to him, subsidy on petrol creates uneven distribution of revenue, round tripping and unnecessary carryover of funds from one year to another in a manner that is difficult to control by the Federal Government.

He said the government, over the years, had not been able to state the actual amount that fuel subsidy would gulp whenever the budget was being prepared by the Federal Ministry of Finance.

 

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